Nintendo’s hottest game in years is saving the company

Nintendo returned a profit over its April to June quarter in part thanks to a super-popular shoot-em-up online game in which players squirt ink to claim rivals’ territory.

The Japanese game company announced a net income of 8.3 billion yen ($67 million) for the three months leading up to June 30, a turnaround from a loss of 9.9 billion yen year-over-year. Operating income for the quarter landed at around $9.3 million (1.1 billion yen).

A big reason for the more positive quarter is Splatoon, Nintendo’s entry into the world of online shooters. The Wii U game marks a cute reinvention of the genre, replacing bullets and gore with ink and lots of color. The family-friendly nature of the game has helped it take off — the company has sold 1.62 million copies since its May release. Splatoon ranked at number five in U.S. software sales in June, according to research firm NPD Group.

Other factors for the company’s success last quarter include strong sales of its Amiibo interactive figurines — the company has sold 14.7 million units since their introduction in the middle of last year — and the depreciation of the yen, which contributed foreign exchange gains totaling 10.8 billion yen.

The results are encouraging for Nintendo, which has suffered from a lack of third party studio support for its Wii U console. The company recently announced it’s working on smartphone games; it’s also developing a new console codenamed “NX.” All this comes after the recent death of company president Satoru Iwata and speculation on his successor. The company declined to divulge more details on the search for a new president in its earnings report.

This move in China could be a big boon for game console makers

In a big boon for Microsoft MSFT, Sony SNE, and Nintendo, China has finally allowed the production and sale of video game consoles on their shores.

In a statement released by the Ministry of Culture, the move will mean that after 15 years, foreign and domestic companies will be allowed to manufacture and sell consoles anywhere in the country, according to a report by The Wall Street Journal.

Consoles were initially banned in 2000 to protect children and youth from the perceived negative effects of playing video games. This, however, hasn’t stopped traders from illegally importing consoles and selling them to customers at “gray markets”.

In January last year, China relaxed their ban by allowing “foreign-invested enterprises” to manufacture consoles inside Shanghai’s Free Economic Zone. The government, however, emphasized that new rules would be drafted to govern the entry of consoles into the country. “Things that are hostile to China, or not in conformity with the outlook of China’s government, won’t be allowed,” said Cai Wu, the head of the Ministry of Culture, in a report by Bloomberg.

This has opened the gateway for companies to start selling their hardware in a potentially huge market. China is the world’s third-largest market for video games, and could overtake the US as the biggest market with potential revenues of more than $22 billion by 2016, according to a report by Newzoo. As a result of China’s console ban, most of the games sold have been online, with sales of online games in China said to reach around $18 billion in 2014.

Companies have already taken steps to make their consoles available in China. Microsoft started selling their Xbox One in September of last year, and sold more than 100,000 units on the first day alone, marking a better debut in China than in Japan, according to a report by Polygon.

This billion dollar market didn’t even exist five years ago

There’s a reason so many companies are entering the toys to life market, a category that didn’t even exist in 2010.

Game maker Activision invented the toys to life genre by packaging toys that unlock gameplay elements in its 2011 game Skylanders: Spyro’s Adventures.

It was a gamble that paid off. In the past four years, the company has sold over $3 billion worth of Skylanders games and toys worldwide.

Other companies quickly followed this model, with Disney DIS launching its Disney Infinity franchise and Nintendo NTDOY introducing its amiibo figures. And Warner Bros. TWX is getting set to launch Lego Dimensions on Sept. 27.

Liam Callahan, analyst for the NPD Group, says there’s been a 48% growth in toys to life sales from software, figures, and accessories between March 2013 and March 2015. He believes this growth has primarily stemmed from the launch of new games in the market.

“The Star Wars brand within Disney Infinity 3.0 has the potential to further grow the space as it has cross-generational appeal, likely bringing in an older child consumer, as well as parents and adult Star Wars fans alike,” Callahan says.

Thanks to the sales of toys, accessories, and software, game companies can generate regular revenue from these franchises once a family invests in a platform. Callahan says in the past six months, parents estimate that they have spent an average of $131 on toys to life games and characters from Activision’s Skylanders, Disney Infinity, and Nintendo amiibo franchises.

And according to a new report from the NPD Group, cross-ownership of Disney Infinity, Skylanders, and Nintendo amiibo figures is fairly high, with 41% of owners saying they have two or more games at home. That’s good news for new entrants to the market like Warner Bros.

“Lego is a huge toy brand that has already seen success in the video game space, which makes them a natural fit for [the toys to life market],” Callahan says. “Lego has been very smart about partnering with hot IP like Batman and Lord of the Rings, as well as creating their own set of characters through The Lego Movie, all of which will be leveraged to draw in consumers to Lego Dimensions this fall.”

Meanwhile Activision ATVI, the company that pioneered this lucrative category, has partnered with Nintendo to introduce characters like Donkey Kong and Bowser to the new Skylanders.

But Michael Pachter, analyst at Wedbush Securities, doesn’t believe that will be enough for Activision to retain its lead position in the space this fall. “I think Disney takes the lead this year,” Pachter says. “Star Wars is compelling IP, and there is a movie to support it.”

Pachter warns that all of the success in this market is having an impact on both the traditional toy business as well as sales of non-toys to life family video games such as the upcoming Lego Jurassic World. He adds there’s room for all of the toys to life franchises to succeed this year, even if Disney and Activision lead the way.

Callahan also believes there’s still room for new brands in this category. So far, each game publisher has invested time and money into making games that parents and kids like to play, and that’s key to continued success.

Remembering FAO Schwarz, the iconic toy store

FAO Schwarz is closing its doors on Wednesday, ending a 145-year run as a high-end New York toy retailer that was as much of a must on any tourist’s itinerary as Tiffany & Co or Bergdorf Goodman.

Its flagship on Manhattan’s Fifth Avenue, the last store of a chain that once had 40 locations, is shuttering, felled by rising rents and the rise of online shopping. But the brand will live on in the form of FAO boutiques inside stores run by its parent company, Toys “R” Us, which bought it in 2009.

The retailer, whose German immigrant founder Frederick August Otto Schwarz at one point was believed to be the largest toy dealer in the world, has etched itself into the collective imagination and even pop culture: a giant illuminated keyboard at the store that Tom Hanks and Robert Loggia danced on was featured in the 1988 classic movie “Big.” In 2011, FAO Schwarz was prominently featured in “The Smurfs” motion picture.

Below is a slide show of the iconic store through the years.

Broadway in New York circa 1894. The toy store then called “Toy Bazaar” was founded by Frederick August Otto Schwarz and his two older brothers. The brothers first and second NYC locations were at 765 Broadway and 1159 Broadway.Courtesy of Toys “R” Us

FAO Schwarz 23rd Street location in New York circa 1897. Frederick consolidated the two NYC stores and moved their location to the heart of Union Square before moving to 23rd Street. Courtesy of Toys “R” Us

The cover of the FAO Schwarz spring and summer goods catalog from 1911. The building is of the toy store’s 303 Fifth Avenue location. Frederick passed away the same year.Courtesy of the Smithsonian Libraries

Santa and Mrs. Claus answering telephone calls in their workshop at FAO Schwartz circa 1947. FAO Schwarz set up a phone number for kids to speak to “Santa” and tell him their holiday wishes.Photograph by Martha Holmes — The LIFE Picture Collection/Getty Images

People looking in the windows at FAO Schwartz’s toy store in 1958. Photograph by Eliot Elisofon — The LIFE Picture Collection/Getty Images

Shoppers in front of the FAO Schwarz toy store, 59th Street and Fifth Avenue in New York, May 22, 1973.Photograph by Anthony Camerano — AP

A remote control TOMY robot offers children a cup of soda at FAO Schwarz in New York on November 30, 1985, as the Christmas shopping season began. This was the last year the toy store had at its 745 Fifth Avenue location. The store moved its flagship store to the current location. Photograph by Phillip Schoultz — AP

A still from the 1988 Hollywood blockbuster, “Big:” Robert Loggia, left, and Tom Hanks stand on a giant piano keyboard at the FAO Schwartz toy store. The piano became a major tourist attraction at the store. Courtesy of Twentieth Century Fox

Children play video games at FAO Schwarz on November 18, 1993. The toy store became the first retailer to sell the Nintendo Entertainment System (NES) in the U.S. in 1985. Photograph by Mark Peterson — Corbis

Children surround a “Furby” at the opening of the FAO Schwarz “Furby Shop” in New York on October 2, 1998. The Furby became one of the hottest toys in the Christmas retail market. FAO hosted the launch event. Photograph by Ray Stubblebine — Reuters

A nearly 15-foot bronze bear from FAO Schwarz is placed on a ferry heading to Bainbridge Island in Seattle on January 25, 2004. Doug Hartley purchased the bear on eBay for approximately $11,800. He planned to display it in front of his child care center.Photograph by Ron Wurzer — Getty Images

FAO Schwarz was purchased by D. E. Shaw & Co. in 2004. The new owners redesigned the store to reopen Thanksgiving Day.Photograph by Redux

Customers shop for Barbie products at the New York store on November 7, 2008. Toys “R” Us acquired the toy store the following year.Photograph by Spencer Platt — Getty Images

The inside of FAO Schwarz is pictured on May 18, 2015. The famous toy store, opened in 1862 and in its current location since 1986, will be closing in July 2015 due to rising rents. Photograph by Timothy A. Clary — AFP/Getty Images

The outside of FAO Schwarz. The FAO Schwarz brand is currently shopping for a new location.Photograph by Bilgin Sasmaz — Anadolu Agency/Getty Images

Mario creator Shigeru Miyamoto is the hot favorite to lead Nintendo

With the passing of Nintendo CEO Satoru Iwata, discussion has turned to who might be next in line to lead the Japanese video game company. And speculation has centered on one man.

Shigeru Miyamoto, the 62-year-old creator of classic Nintendo franchises such as Mario, Donkey Kong and The Legend of Zelda, is considered a favorite to take over the company, according to The Wall Street Journal.

Revered as a legend in gaming circles for his role as the chief designer of Nintendo’s most popular games, Miyamoto’s work has also won celebrity friends, such as Japanese filmmaker Hayao Miyazaki and rock musician Paul McCartney. In 1998, Miyamoto was honored as the first inductee into the Academy of Interactive Arts and Sciences Hall of Fame.

Iwata passed away over the weekend owing to complications from bile duct cancer, Nintendo said in a statement. While it didn’t name an interim president, it also added that the company’s two remaining representative directors—Miyamoto and Genyo Takeda—would continue at the company.

Miyamoto himself released a statement to Eurogamer soon after Iwata’s death, saying that “the entire development team at Nintendo will remain committed to our development policy which Mr. Iwata and we have been constructing together and to yield the development results which Mr. Iwata would appreciate.”

Longtime leader of video game giant Nintendo dies

Satoru Iwata, who led video game maker Nintendo through one of the most successful periods in its history, has died at the age of 55, Nintendo said Sunday.

“Nintendo Co., Ltd. deeply regrets to announce that President Satoru Iwata passed away on July 11, 2015 due to a bile duct growth,” the company said in a succinct statement.

News of Iwata’s passing shocked the video game industry. As recently as last month, he appeared in a marketing video the company presented during the E3 annual video game trade show.

In truth, Iwata has been fighting the bile duct growth for two years. He skipped E3 in 2014 to have surgery for the condition. And, again this year, he declined to appear in person, though the company did not indicate health as the reason for the decision.

While the illness was known, many thought he would make a full recovery based on his comments about the diagnosis.

“In general, it is said that a bile duct growth can be difficult-to-treat, partly because of the difficulty of detecting it early,” he wrote in a letter to shareholders last year. “In my case, luckily, it was detected very early and I had no symptoms. I was counseled that removal at an early stage would be the desirable medical option. Therefore I had surgery last week, and I came through it well, as predicted.”

Iwata was the fourth person to serve as president of Nintendo. He succeeded Hiroshi Yamauchi, who transformed Nintendo from a card company into a video gaming superpower. Prior to his role as a gaming executive, Iwata was a game maker – specifically, a programmer at HAL Laboratory, which is known for the Kirby and Super Smash Bros. franchises. He took over as president in 2002.

“On my business card, I am a corporate president,” he said in 2005 at a keynote speech at the Game Developers Conference. “In my mind, I am a game developer. But in my heart, I am a gamer.”

Iwata’s tenure as president took Nintendo in many new directions. The Nintendo DS handheld video game console was a revolution in mobile gaming – and has sold more than 200 million units since its 2004 launch. And he offered fans a peek behind the curtains, something the notoriously secret Nintendo had never done before, by hosting a series of game developer interviews known as “Iwata Asks.” He also led the charge with the company’s “Nintendo Direct” broadcasts, during which the company would unveil new games and features.

But Iwata’s legacy will undoubtedly be the Nintendo Wii – a console system that helped the industry reach a large number of new players. The system eventually sold 101 million units, despite initially facing plenty of naysayers, who scoffed at the non-standard controller.

Those criticisms never caused Iwata to waver in his confidence.

“Until now, within a single household, we’ve had family members who play video games and family members who don’t play video games – and they’ve been very separate,” he said in 2005. “Gradually, the barriers between those two have gotten stronger. … Today, if you don’t understand the controller, you’re not able to enjoy video games.”

Before his passing, he was once again trying to steer Nintendo into new waters. Work is already underway on a Nintendo game for Apple iOS and Android devices. Next year the company plans to reveal details about its new console system – currently code named NX. And a little over a year ago, he announced the company would be making products that focus on the quality of life – the first of which is a sleep monitor.

While the company searches for a new president, two longtime staffers will lead Nintendo. Genyo Takeda and Mario creator Shigeru Miyamoto will share the titles of representative director and senior managing director.

Nintendo CEO Satoru Iwata has died, aged 55

Japanese videogame maker Nintendo Co Ltd’s chief executive and president, Satoru Iwata, died on Saturday due to a growth in his bile duct, the company said. He was 55.

The death of the hands-on CEO comes as the company expects to double annual operating profit in the year through March thanks to its long-awaited entry into smartphone games, amid weak sales growth in its traditional consoles.

Iwata, who opposed the move into mobile until the last months of his life, underwent surgery in June last year to remove the growth and had resumed his duties after a brief period of recovery. He had said in October that he had recovered well enough to resume his regular duties, and that he felt healthier despite having lost weight.

Iwata had been a director at Kyoto-based Nintendo since 2000, and was appointed president in 2002. He had also acted as CEO of the U.S. unit since 2013.

Iwata’s death leaves senior managing directors Genyo Takeda and Shigeru Miyamoto as representative directors, the company said in a statement. (Read Fortune’s recent interview with Miyamoto on the company’s struggling Wii U game system here.)

Nintendo’s shares were up about 1%, in line with the broader Tokyo market. They have risen over 50% since the start of the year as investors have warmed to the company’s change in strategy.

Presiding over a news conference in May to announce Nintendo’s full-year financial results, Iwata had said the company’s long-awaited entry into smartphone games would help it double annual operating profit in the year to next March.

Why Nintendo is betting on eSports, and not VR

eSports and VR are two of the biggest trends in technology right now—and Nintendo is 25 years ahead of the game.

Nintendo NTDOY was one of the first major game companies to embrace eSports—long before eSports was a thing—with the 1990 Nintendo World Championships. And in 1995, Nintendo was well ahead of the current virtual reality craze with Virtual Boy, the first console virtual reality headset.

In both cases, Nintendo abandoned eSports and virtual reality in favor of creating console and portable games around iconic characters like Mario, Donkey Kong, and Link. But Nintendo is still keeping an eye on both markets.

“We have a long and deep history with VR with Virtual Boy, and we also have a history with augmented reality because there’s AR in Nintendo 3DS,” Reggie Fils-Aime, president of Nintendo of America, says. “We know the tech and we know how the tech has evolved. For Nintendo, we always go beyond the tech to make sure that the experiences we do are fun and they’re social, and I think those are the two key opportunities today on the VR/AR space. Are they both fun and social? I don’t think that’s there yet. So we’re going to continue to stay close to the technology. We’re going to continue to do our own internal experiments, but we don’t believe it’s ready for prime time yet.”

But what is ready for prime time is eSports. Nintendo stepped back into that arena last year at E3 with the Super Smash Bros. Invitational and this year brought back the Nintendo World Championships to kick off E3 2015.

“We saw success last year with the Smash Bros. Invitational, and Smash Bros. has always been a game in the eSports community,” Fils-Aime says. “What we’re really gratified to see is that the community has now embraced Super Smash Bros. for Wii U because it has the speed and customization they like. We’re also seeing them embrace Mario Kart 8, as well as Splatoon, in a competitive environment. We’ve always been close to the eSports space and will continue to be.”

Fils-Aime says the Nintendo World Championships, which was brought back to celebrate the 25th Anniversary of the original event, was viewed over 5 million times in the first four days. He notes that viewership continued to be quite strong even as the E3 show wound to a close, which means it could have a “nice long tail.”

All of those viewers were able to see brand new Nintendo games such as Splatoon and Super Smash Bros. integrated into the competition, as well as upcoming releases like Blast Ball and Super Mario Maker. In years past, Nintendo held traditional E3 press conferences filled with sales stats and video game presentations—something Sony and Microsoft still do. But eSports allows the company to directly connect with its fans. Even Fils-Aime took the stage to play—and get beat by—a pro Super Smash Bros. player known as Hungrybox.

According to Fils-Aime, eSports is a great way for fans to get hands on time with new games like Mario Kart 8 and Splatoon. While Nintendo hasn’t committed to another World Championships, Fils-Aime says the company learned a lot in executing this tournament and has plenty of experience to create these types of events.

“We’re fortunate that we’ve got the range of content to pull it off in the here and now, and we’re really gratified to see the reactions,” Fils-Aime says. “All of that is going to go into the mix as we think about proper opportunities, future E3s as well as potentially taking the idea outside of E3. So it’s something we’re going to be looking at really hard.”

Shigeru Miyamoto: Why the Wii U crashed and burned

Fortunes change fast in the video game world. Six years ago, Nintendo’s Wii was in a position that every hardware company dreamed of—a game system that not only captured the imagination of the core player but also was widely and warmly embraced by the mass audience.

This generation, though, the company has been the target of endless armchair quarterbacks, who talk at length about why Nintendo NTDOY should exit the hardware business.

The Wii U is the point of contention. Life to date, the system has sold about 9.5 million units, says Nintendo. That makes it the slowest selling system in the company’s history, worse, even, than the Gamecube.

(For comparison: It took Sony’s PlayStation 4 less than nine months to top what Nintendo’s system sold in 2.5 years. PS4 sales today stand at 22 million.)

Everyone has a theory about what went wrong. Some say the system’s hardware wasn’t a substantial enough improvement on its predecessor. Many cite the lack of must-have Wii U games. But Shigeru Miyamoto, Nintendo’s famed designer who created iconic franchises such as Mario, Donkey Kong, and The Legend of Zelda, says he thinks something else was to blame.

“I feel like people never really understood the concept behind Wii U and what we were trying to do,” he says. “I think the assumption is we were trying to create a game machine and a tablet and really what we were trying to do was create a game system that gave you tablet-like functionality for controlling that system and give you two screens that would allow different people in the living room to play in different ways. …. Unfortunately, because tablets, at the time, were adding more and more functionality and becoming more and more prominent, this system and this approach didn’t mesh well with the period in which we released it.”

Regardless of the reason, there just never was a real sense of excitement about the Wii U. And while neither Miyamoto nor Shinya Takahashi (who oversees Nintendo’s Software Planning & Development Division with Miyamoto, and heads development on all Nintendo games that aren’t run directly by Miyamoto) were willing to get into specifics on the NX, the company’s next console, they did imply that they think the excitement will be back when details are announced.

“For us, the next step is to think about what is going to be that element that is really going to catch the attention of a large number of players again and get them excited,” says Takahasi. “We’re constantly thinking about this idea from the perspective of the players and the needs of the players in terms of what can we can do with our ability and our technology to capture that excitement and passion.”

Miyamoto’s involvement in the creation of the Wii is well known in the video game industry. But as the NX is being made, he says he’s taking a step back.

“I’ve pulled myself back out of some of the hardware section and I’m really focused on some of the software that I’m involved in—for example, the new Starfox game,” he says. “Of course I am observing and looking at the hardware, but I am not actively participating and making decisions.”

The problem for Nintendo is the NX’s launch is at least a year away—likely more, as the company reportedly just started talking about it with third party partners at this year’s E3. (The reception, say insiders, was positive.) That means the company has to rely on the Wii U a little while longer. And while many gamers may have chosen to focus instead on console offerings from Microsoft and Sony, Miyamoto says he regrets the system will likely never live up to its full potential.

“I still feel it was a very novel approach—and a very interesting idea,” he says.

For the next two weeks, gamers can download the games free of charge at Nintendo’s online shop for a trial period, and will get a 15% discount if they then buy the games once they launch. The offer, announced at the E3 video game trade show in Los Angeles, runs to 08.59 Pacific Time on June 22.

“Independent developers continue to impress us with great digital games and experiences for the Nintendo eShop on Wii U,” said Damon Baker, Nintendo of America’s Senior Marketing Manager of Publisher and Developer Relations. “We want to give people at home a taste of the fun of E3, along with the chance to try some amazing games before they launch later this year.”

The games involved in the promotion are as follows (the descriptions are Nintendo’s):

Extreme Exorcism from Ripstone: In this paranormal Wii U platformer, every move players make comes back to haunt them. After each round players survive, a ghost will appear to mimic their every move from the round before. The longer a player survives, the more extreme the game becomes. The game offers 20 ghostbusting weapons, 50 challenges and co-op or deathmatch battles for up to four friends. The full game is scheduled to launch in Q3.

forma.8 from Mixed Bag: In a distant future, the small exploration probe forma.8 is stranded alone on the surface of an alien planet. Players must explore a huge open world to help the probe acquire 10 different power-ups and recover a powerful energy source deep under the surface. The game includes an area exclusive to the Wii U version. The full game is scheduled to launch this fall.

Freedom Planet from GalaxyTrail: Players fight their way across the celestial world of Avalice, where cats are green, motorcycles drive up walls and monster girls do most of the butt kicking. This cartoony, combat-based platform Wii U adventure pits a spunky dragonoid and her friends against an alien attack force. The full game is scheduled to launch in August.

Lovely Planet from tinybuild and QUICKTEQUILA: This first-person shooter gun ballet for Wii U is set in a cutesy abstract world. Players jump and shoot their way through five worlds full of treacherous enemies with your trusty semi-automatic. The game offers 100 levels to master and five worlds to discover, with multiple secrets hidden deep within each world. The full game is scheduled to launch in December.

Mutant Mudds Super Challenge from Renegade Kid: This platformer picks up right where the original Mutant Mudds left off. The game, which is exclusive to the Nintendo eShop on Wii U and Nintendo 3DS, includes 40 new dimension-bending levels and epic boss fights designed for super players. The full game is scheduled to launch this summer.

RIVE from Two Tribes: This metal-wrecking, robot-hacking Wii U shooter combines old-school gaming values in a new-school execution. With intense 360-degree shooting and platforming action, players learn to alter the behavior of their robotic enemies by collecting and uploading hacks. The full game is scheduled to launch in November.

Runbow from 13AM Games: Up to nine players can join in the colorful chaos in this Nintendo eShop exclusive. The world transforms before players’ eyes with each swipe of color, so think fast to stay alive. Go head to head in Run, Arena and King of the Hill, or play as the ColorMaster and manipulate the environment on the Wii U GamePad controller. Players can take on challenges alone or with friends in Runbow’s Adventure Mode. The full game also features guest characters from other Nintendo eShop titles. The full game is scheduled to launch in Q3.

Soul Axiom from Wales Interactive: Soul Axiom is a haunting cyber-thriller, combining elements of exploration and puzzle solving with a compelling storyline. In first-person, the player will explore more than 40 unique locations, using powers to interact with cryptic logic puzzles and making psychological decisions to unlock the secrets of your identity, your story, your mystery. The full game is scheduled to launch in December.

Typoman from Headup Games and Brainseed Factory: Change Words, Change Worlds! Typoman is a two-dimensional puzzle platformer distinguished by a unique game world. Be the HERO and set out on the journey to become whole and gain the powers you need to defeat the giant evil demon that rules the world you are trapped in. The full game is scheduled to launch exclusively on Wii U in Q3.